In the Face of Personal Bankruptcy

Press Release

In the Face of Personal Bankruptcy

11 Sep 2020

Paul Hennelly – Senior Manager, Grant Thornton Specialist Services (Cayman) Limited

Gray Hewson – Manager, Grant Thornton Specialist Services (Cayman) Limited

11 September 2020

Economic Turmoil

As the world cautiously re-opens businesses to workers and consumers, the focus on a swift economic recovery is widely reported on.  Notwithstanding a level of global hopefulness of economic recovery, many countries will suffer from a sustained period of limited, or even negative economic growth and a reduction in consumer spending.  The true long-term economic impact of the global pandemic remains uncertain with businesses large and small currently being buoyed by Government measures to protect them. 

The Cayman Islands has established a robust financial services sector, and it is a domicile of choice for high net worth individuals. As many individuals assess the impact of recent economic events on their solvency status it is worth considering the legal and regulatory landscape available to creditors, both foreign and local. 

Grant Thornton - Personal Insolvency & Asset Tracing Experts

Personal bankruptcy proceedings in the Cayman Islands are rare and these proceedings are governed by the Bankruptcy Law (1997 Revision) and the Grand Court (Bankruptcy) Rules. There has only been a handful of personal bankruptcies in the Cayman Islands in the past 10 years with any significant value of assets involved. The Grant Thornton Specialist Services (“GTSS”) team have been involved in the majority of those personal bankruptcies.

GTSS’ experience in administering personal bankruptcies in the Cayman Islands, combined with several on our team who have conducted personal bankruptcy administrations in common law jurisdictions abroad, lends considerable expertise to either a debtor considering filing for bankruptcy within the islands or local or foreign creditors seeking to enforce against a Cayman Islands resident. Additionally, as part of our global network, GTSS has specialist resources focused solely on asset tracing and recovery for clients who have suffered a financial loss. In the last decade our global team has recovered over US$3bn worth of assets for stakeholders.

Cracking the Local Personal Insolvency Code

The credibility of personal insolvency regimes is premised largely on compatible credit, enforcement, and legislative systems. An efficient system for enforcing debt is especially important as far as unsecured credit is concerned. The ability of a creditor to take possession of a debtor’s property and satisfy its debt varies from country to country, with some countries being more “creditor friendly” and others more “debtor friendly”.

The Cayman Islands’ bankruptcy regime is “creditor friendly”, marked by uncompromising obligations on the part of the bankrupt. The Cayman bankruptcy law requires the appointment of a Trustee, the Clerk of the Court, who is responsible to the Court.   The proceedings have a statutory requirement for examinations of the debtor, an involved discharge process and emphasis on creditor committee participation. From a creditor perspective, the bankruptcy law provides an extended lookback period within which the Trustee in Bankruptcy has an ability to void antecedent transactions for the benefit of the estate’s creditors. This lookback period extends to 10 years, typically twice that of other insolvency jurisdictions. This has the advantage of permitting the Trustee in Bankruptcy to consider the affairs of the bankrupt over a period of time and will enable a Trustee to recover funds that may have been transferred by the debtor for the purpose of avoiding his creditors.

The bankruptcy law of the Cayman Islands is consistent with laws in common law jurisdictions by allowing ease of access to the jurisdiction. The similarity in basic principles of law has the advantage of offering an internationally congruent approach. 

Jurisdictional Reach - Recognition

Due to the small size of the local Cayman Islands economy and the high expatriate population, it is not uncommon that a Cayman Islands resident debtor may have interests outside of the jurisdiction. In circumstances where a Cayman Islands debtor has interests, be that assets or pertinent information held by third parties outside of the jurisdiction, obtaining recognition of the appointment of the Cayman Islands Trustee in Bankruptcy may prove crucial to recovering the information and/or assets of the debtor. Recovery of overseas assets, particularly those that have been sheltered in multijurisdictional structures, need cross border reach and expertise beyond simply appointing a trustee in bankruptcy in the Cayman Islands.  Recognition of a Cayman Islands bankruptcy proceeding as a “foreign main proceeding” can be sought globally and is particularly effective with countries who have adopted the UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law").

A "foreign main proceeding" means a foreign proceeding in a jurisdiction where the debtor has its centre of main interest. Factors to be considered in determining whether a Cayman Islands bankruptcy is deemed a foreign main proceeding include if the Cayman Islands is readily ascertainable by creditors as the debtor’s location; where the debtor's principal assets and operations are found; where the management of the debtor takes place; and, is the debtor's ordinary place of residence. While none of these factors themselves are the sole determining factors, a preponderance of them creates a presumption that the jurisdiction is the debtor's centre of main interest. A "foreign non-main proceeding" means a foreign proceeding that it is not in a jurisdiction where the debtor has its centre of main interest.

Although the Cayman Islands has not adopted the Model Law, it is only relevant that the foreign jurisdiction in which recognition is being sought has adopted the Model Law. Subscribed foreign jurisdictions may defer to the Cayman Islands Bankruptcy Laws if the Court recognises the bankruptcy as a foreign main proceeding, however approach to the adoption of the Model Law is not universal. The Model Law does not require reciprocity thus if a bankruptcy proceeding initiated in the Cayman Islands is recognised as a foreign main proceeding in a Model Law subscribed foreign jurisdiction, the courts may undertake best efforts to cooperate with the laws of the Cayman Islands including the creditor-favourable legislation and lookback provisions provided for under the Bankruptcy Law (1997 Revision). An insolvency practitioner appointed to a Cayman based personal bankruptcy, with the ability to assert the Cayman Islands as the centre of main interest, may trace and recover information and assets of the debtor globally.

GTSS has considerable experience in obtaining recognition and recovery of foreign assets and information of Cayman Islands personal bankruptcy administrations in Canada, USA, England, Hong Kong, Singapore, and Switzerland.

Personal Insolvency in the Cayman Islands

Insolvency statistics are not widely available in the Cayman Islands so it is difficult to calculate or predict the impact of declining levels of employment and particularly where many countries are artificially sustaining employment through state incentives. Equally, enforcement options by creditors are approached with an attitude of leniency at least temporarily and the global courts are reluctant to take aggressive steps in the current climate. However, it will not be surprising to see an increase in personal insolvency related queries as the economic environment returns to pre-pandemic levels as the global courts return to normal.

For  those resident high net worth individuals whose business interests across the globe are threatened, creditors can look to enforce personal guarantees and will evaluate the enforceability of such guarantees, particularly in light of the effect that the global economic downturn may have on the guarantor’s business, irrespective of the business location.

The team at GTSS have the knowledge and skills to assist with debtor or creditor led inquiries. Our wealth of experience in this specialist area and asset tracing allows us to offer meaningful solutions however complex they may be.    

For further information, please contact margot.macinnis@uk.gt.com or paul.hennelly@uk.gt.com